UK households have cut back on big purchases such as holidays as fears of a possible recession continue to loom, a survey suggests.

Confidence among UK households has fallen to its lowest in three months, according to the latest IHS Markit household finance index, dropping to 43.7 in August from 44.3 the previous month.

The index measures perceptions of financial well-being, with readings below 50 reflecting a deterioration in sentiment.

The latest figures reveal that British households have grown more cautious in their appetite to make major purchases such as cars and holidays falling at the second-fastest rate since September 2017.

Concerns over Brexit and a possible recession also saw households become increasingly pessimistic about job security, with the survey posting the strongest degree of negativity since March.

However, income from employment continued to rise, although the rate of growth narrowed to the weakest figure for five months.

Although wage growth is outstripping inflation, which sits around the Bank of England’s 2% target, consumer confidence has been held back by continued uncertainty.

The latest GDP figures revealed that the economy shrank by 0.2% in the second quarter of the year, increasing fears of the potential for a recession.

Joe Hayes, economist at IHS Markit, said: “Latest survey data continued to highlight a fragile state among UK households towards their financial well-being.

“The Brexit haze, uncertainty over the political environment and the increased possibility of the UK entering recession appear to have dented expectations, which dipped into negative territory following positive readings in both June and July.”

The survey also noted that almost a quarter of households expect interest rates to rise, the highest since October 2016.